A cross-party coalition of Members of Parliament is urging ministers to promptly allocate £4 billion to bolster English town hall budgets. This call for action aims to avert an imminent "out of control" financial crisis that poses the risk of pushing efficiently managed councils into extensive bankruptcy, thereby jeopardizing local services.
Crisis Unveiled: Committee Calls for Urgent Overhaul as UK Councils Face Extensive Bankruptcy
The committee on levelling up, housing, and communities emphasized the immediate need for government intervention to assist councils grappling with diminishing resources and the escalating costs associated with increased demand for adult social care, child protection, homelessness, and special educational needs provision.
Stating that the existing local government funding system is flawed, the committee urged the upcoming UK government to initiate a prompt review of the functions performed by councils and the financing of local services. This review should encompass a comprehensive overhaul of the "outdated and regressive" council tax system.
The committee's investigative report comes in the wake of mounting evidence indicating "financial distress" in local authorities. Since 2018, eight English councils, including four within the past 12 months, have effectively declared themselves bankrupt, with numerous others indicating severe spending reductions to avoid potential insolvency.
A recent investigation by The Guardian unveiled plans by English councils to raise council tax bills by £2 billion starting April. Concurrently, these councils are contemplating substantial cuts to "non-core" services and jobs, as well as the sale of land, buildings, and other assets, in an effort to balance budgets following over a decade of cuts.
Committee chair Clive Betts emphasized,“There is an out-of-control financial crisis in local councils across England. Councils are hit by a double harm of increased demands for services while experiencing a significant hit to their real-terms spending power in recent years.
“The government must use the local government financial settlement to help bridge the £4bn funding gap for 2024-25 or risk already strained council services becoming stretched to breaking point. If the government fails to plug this gap, well-run councils could face the very real prospect of effectively going bust.”
Government's £600 Million Council Boost Sparks Debates on Sustainable Funding and Reform
The government's recent announcement of a £600 million boost for English councils, with a focus on social care services, followed a potential revolt by disgruntled Tory backbench MPs who objected to service cuts amid rising council taxes. Despite the injection of funds, councils caution that the underlying financial issues persist.
While ministers attempt to portray councils like Woking, Birmingham, and Nottingham as isolated cases of mismanagement, the committee's report underscores the cumulative impact of years of underfunding, pushing many councils across England to a critical "tipping point."
The committee advocates for a broad review of council funding, emphasizing the need for an overhaul of council tax and business rates to ensure fairness and sustainability. The report highlights the widely shared view that council tax is outdated and regressive, calling for a revaluation of domestic property values last assessed in 1991.
The report identifies three primary pressure points on councils: social care costs consuming a significant portion of top-tier council spending, a £3.6 billion deficit in special educational needs provision, and challenges associated with rising homelessness. The overall £4 billion funding shortfall aligns with estimates by the Local Government Association, which stresses the need for an additional £2.4 billion in 2023-24 and £1.6 billion in 2024-25 to maintain current service levels.
Pete Marland, Labour chair of the LGA’s resources board, emphasizes the misalignment between available funding and the demands placed on councils, calling for urgent attention to the entire system of funding local government, including legislative reform.
A spokesperson for the Department for Levelling Up, Housing & Communities acknowledges councils' challenges, citing the recently announced £600 million support package, which represents a 7.5% increase in cash terms for the proposed funding of £64.7 billion next year. The spokesperson remains open to discussions with concerned councils about their financial positions.